Loan losses at large-cap banks may increase to levels that exceed the Great Depression, banking analyst Mike Mayo said in a note published Monday.

Loan losses at large-cap banks are expected to increase to levels that "exceed the Great Depression," high-profile banking analyst Mike Mayo writes in a note Monday re-initiating coverage on the large-cap bank sector at his new firm CLSA.

Mayo rates the U.S. bank sector at underperform, giving bearish ratings to 11 companies, according to the note. He says the government's efforts to curtail the financial crisis may not help as much as expected, "especially given that loans have been marked down to only 98 cents on the dollar, on average," he writes.

"The seven deadly sins of banking include greedy loan growth, gluttony of real estate, lust for high yields, sloth-like risk management, pride of low capital, envy of exotic fees, and anger of regulators," Mayo writes in the note.

"To a degree, each reflects a way that banks tried to compensate for lower natural rates of growth by taking more risk," he writes. "The effect was to front-load earnings only to have back-ended costs, the brunt which is getting felt today. The consequences of this risk, while not new, seem only midstream and have more to go."

He expects the ratio of loan losses to loans to rise to a range of 2% to 3.5% by the end of next year, given "ongoing problems in mortgage and an acceleration in cards, consumer credit, construction, commercial real estate and industrial," the note says.